11 Jul 2023 3 min read

Value versus growth: more than meets the eye

By Andrzej Pioch

It's easy to see the appeal of simplistic explanations, but detailed analysis shows the value/growth narrative conceals several crucial nuances. 


Few investment topics are subject to more debate than the relative merits of the value and growth factors. Anyone who joined the ride in recent years has experienced quite a rollercoaster, with 2021’s headlines declaring the return of value now replaced with those hailing the rise of growth.

So where do we go from here?

When things get increasingly complex, mental shortcuts or rules of thumb become very tempting. They bring us comfort by making sense of the muddy world around us.

One of those that rose in popularity last year was the assertion that growth stocks are inherently more sensitive to interest rates, given the longer-term nature of cash flows underpinning their valuations.

Here’s where it gets complicated

However, our analysis has shown that this relationship is modest at best, with certain factors forcing the dynamic in the other direction. For example, if higher inflation driven by rising wages is a concern that sends bond yields higher, a tech stock (a poster child of growth) may benefit from having the least labour-intensive business model.

Another idea we hear today is that we are in the middle of the growth environment, with the MSCI World Growth index up 20% year to date and the MSCI World Value down nearly 2%.1

Yet a closer examination reveals significant regional divergence. The gap in the UK is closer to 9%, with value still outperforming growth until mid-March. Europe is closer to 7%, Japan 6% and the rest of Asia-Pacific closer to 4%. Emerging markets march to their own drum, with value ahead of growth by more than 2%.2

The sector vector

That makes the United States the big outlier in the value/growth dynamic this year. Why is it different and how much does this have to do with equity factors, such as value and  growth?

Our performance attribution reveals that two-thirds of the growth outperformance can be traced back to differences in sector allocation. Here, the sector effect is largely down to the overweight in information technology at the expense of financials and energy.


In other words, a growth strategy implemented on a sector-neutral basis would shrink the outperformance by a factor of three. The same happens if one excludes the effect of different allocations to ‘MATANA’3* stocks. These six stocks alone explain 64% of the year-to-date performance gap between value and growth.

The ‘growth environment’ so widely discussed today may actually be a ‘US tech environment’ or, more precisely, a ‘MATANA environment’ – much more driven by stock-specific risks rather than broad equity factor risks. This, in turn, should have implications for how sustainable that environment might be going forward, given how narrow the recent rally in US equities has been, in our view.

This article is an extract from our Q3 AA Outlook

*For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.


1. Source: Bloomberg data, net total return to the end of May 2023 in US dollar terms

2. Source: Bloomberg data, net total return to the end of May 2023 in US dollar terms

3. Microsoft, Alphabet, Nvidia, Amazon, Tesla and Apple

Andrzej Pioch

Fund Manager

Andrzej is a fund manager who places a lot of importance on being mindful. He starts the day with a one-mile swim and a cycle to work. In the office, he focuses on multi-asset income strategies and multi-factor equities, and regularly lectures on asset allocation at one of the London universities. With his newly found enthusiasm for running, he now hopes to tick off one of his bucket list goals and take part in a triathlon. Watch this space…! Andrzej joined in 2014 after five years in the multi-asset team at Aviva Investors.

Andrzej Pioch